Technical Bulletin July 2014 - Accounting Standards

1. ACCOUNTING

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

Pronouncements Effective for Annual Periods Beginning on or After January 1, 2014

Investment Companies and Segregated Accounts of Life Insurance Enterprises

Mandatory date for first-time adoption of IFRS by investment companies and segregated accounts of life insurance enterprises - fiscal years beginning on or after January 1, 2014.

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

Amendment to IFRS 10 introduces an exception for investment entities to the principle that all subsidiaries are consolidated. Amendments define investment entities and require them to measure subsidiaries at fair value through profit or loss. In addition, IFRS 12 has been amended to include disclosure requirements for investment entities. IAS 27 has been amended to require investment entities to measure investments in subsidiaries at fair value through profit or loss when separate financial statements are presented.

IAS 32 Financial Instruments: Presentation

Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32): amendment addresses inconsistencies identified in applying some of the offsetting criteria.

IAS 36 Impairment of Assets

The standard was amended to modify certain disclosure requirements about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal.

IAS 39 Financial Instruments

The standard was amended to allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original counterparty with a new one). Similar relief will be included in IFRS 9 Financial Instruments.

IFRIC 21 Levies

This new interpretation provides guidance on the accounting for levies imposed by governments. The interpretation clarifies the obligating event that gives rise to a liability to pay a levy.

Pronouncements Effective for Annual Periods Beginning on or After July 1, 2014

IAS 19 Employee Benefits

Amendment to IAS 19 simplifies the accounting for contributions to defined benefit plans that are independent of the number of years of employee service.

Annual Improvements 2010-2012 Cycle

Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process. IFRS 2 Share-based Payments	Clarification of the definition of 'vesting conditions' by separately defining a 'performance condition' and a 'service condition'
IFRS 3 Business Combinations	Clarification of the accounting for contingent consideration in a business combination
IFRS 8 Operating Segments	Addition of a disclosure requirement about the aggregation of operating segments and clarification of the reconciliation of the total of the reportable segments' assets to the entity's assets
IFRS 13 Fair Value Measurement	Clarification on guidance related to the measurement of short-term receivables and payables
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets	Clarification of the requirements for the revaluation model regarding the proportionate restatement of accumulated depreciation
IAS 24 Related Party Disclosures	Clarification of the identification and disclosure requirements for related party transactions when key management personnel services are provided by a management entity

Annual Improvements 2011-2013 Cycle

Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

IFRS 1 First-time Adoption of International Financial Reporting Standards	Clarification that if a new IFRS is not yet mandatory but permits early application, that IFRS is permitted, but not required, to be applied in the entity's first IFRS financial statements
IFRS 3 Business Combinations	Modification to the scope exception for joint ventures to exclude the formation of all types of joint arrangements and clarification that the scope exception applies only to the financial statements of the joint arrangement itself
IFRS 13 Fair Value Measurement	Clarification that the portfolio exception applies to all contracts within the scope of IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32
IAS 40 Investment Property	Clarifying the interrelationship between IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property

Pronouncement Effective for Annual Periods Beginning on or After January 1, 2015

Entities with rate-regulated activities

Mandatory date for first-time adoption of IFRS by entities with rate-regulated activities - fiscal years beginning on or after January 1, 2015.

Pronouncement Effective for Annual Periods Beginning on or After January 1, 2016

IFRS 14 - Regulatory Deferral Accounts

This interim standard permits first-time adopters to continue to recognize amounts related to rate regulation in accordance with previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the Standard. Earlier application is permitted.

Pronouncement with Effective Date to Be Determined

IFRS 9 Financial Instruments

This new standard replaces the requirements in IAS 39 Financial Instruments: Recognition and Measurement for classification and measurement of financial assets. IFRS 9 also incorporates requirements for financial liabilities, most of which were carried forward unchanged from IAS 39. Certain changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

As well, requirements related to hedge accounting, representing a new hedge accounting model, have been added to IFRS 9. The new model represents a substantial overhaul of hedge accounting which will allow entities to better reflect their risk management activities in the financial statements. The most significant improvements apply to those that hedge non-financial risk, and so these improvements are expected to be of particular interest to non-financial institutions.

As a result of these changes, users of the financial statements will be provided with better information about risk management and about the effect of hedge accounting on the financial statements.

IFRS 9 is available for application; however, the previous mandatory effective date of January 1, 2015 has been removed as the IASB decided that this date would not allow sufficient time for entities to apply the new standard because the impairment phase of the IFRS 9 has not yet been completed. In February 2014, the IASB tentatively decided on the new mandatory effective date of January 1, 2018.

Recently Issued Documents for Comment

Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging

The IASB issued this Discussion Paper in April 2014 with the goal of exploring a possible approach to better

reflect dynamic risk management activities in entities' financial statements. The approach is the portfolio revaluation approach (PRA). When applying the PRA, exposures within open portfolios would be revalued with respect to the managed risk. This revaluation would offset the effect of measuring any risk management instruments (derivative instruments) that are used to manage those risks at fair value.

The IASB will use the feedback received on the Discussion Paper to evaluate whether, and how, the new approach would result in an enhancement of the usefulness of the information provided by the financial statements. The feedback will be also useful to the IASB to assess whether the approach being explored is operational and to evaluate whether, and how, it could be applied to other risks.

The comment period ends on October 17, 2014.

Investment Entities – Applying the Consolidation Exception (Proposed Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures)

This ED was issued by the IASB in June 2014, proposing amendments that are designed to clarify three issues about the application of the requirement for investment entities to measure subsidiaries at fair value instead of consolidating them. The proposed amendments:

confirm that the exemption from presenting consolidated financial statements continues to apply to subsidiaries of an investment entity that are themselves parent entities;
clarify when an investment entity parent should consolidate a subsidiary that provides investment-related services instead of measuring that subsidiary at fair value; and
simplify the application of the equity method for an entity that is not itself an investment entity but that has an interest in an associate that is an investment entity.

Comment period ends on September 15, 2014.

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Canada: Technical Bulletin July 2014